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Friday, July 09, 2010

What Is Money?

Money, an object that we used everyday but never give it any deep thought. When I was small, my understanding is that money is created by Bank Negara Malaysia. Then I discover that different nations have their on bank negara. I always thought that money is the one that you can see and hold. What ever extras that you have, you can ask the bank to hold it on your behalf.

But, that is not the entire truth. Apparently, money is also debt! The amazing thing is that the majority of the money is created by banks and not by the central bank. The amount of physical money that we see and hold pales in comparison as the total amound of credit/debt that is created by the banks. Mind boggling eh? They don't teach you at school about this, luckily we have the Internet.